Disallowance of Sales promotion expenses is justified where the assessee fails to prove the genuineness of expense.
BINOD KUMAR KHERIA vs. ASSISTANT COMMISSIONER OF INCOME TAX
- This appeal filed by the assessee is directed against the order of Ld. CIT (Appeals) – 11, Kolkata dated 25.01.2018 and the solitary issue involved therein relates to the addition of Rs. 6,06,000/- sustained by the Ld. CIT(A) out of sales promotion expenses.
- The assessee in the present case is an individual who is an LIC agent. The return of income for the year under consideration was filed by him on 23.09.2013. In the profit and loss account filed along with the said return, a sum of Rs. 17,82,474/- was debited by the assessee on account of business promotion expenses. In this regard, it was explained by the assessee during the course of assessment proceedings before the A.O. that he had purchased 246 silver coins each weighing 100 grams from M/s. Soumya Business, 3D, Ganguly Lane, Kolkata – 700 007 and the same were distributed amongst his clients. The four invoices raised by M/s. Soumya Business for supply of 246 silder coins totally amounting to Rs. 15,10,354/- were also produced by the assessee in support of his claim. In order to verify the claim of the assessee, notice was sent by the A.O. to M/s. Soumya Business but the same could not be served by the notice server as the said party was not traceable at the address given in the bills. A summon issued by the A.O. u/s 131 at the said address was also returned back by the postal authority unserved. Even the assessee could not produce the said party for verification despite specific opportunity given by the A.O. in this regard. The A.O. also made enquiry with the concerned VAT Authority which revealed that the concerned dealer M/s. Soumya Business was indulging in issuing fake bills. It was also revealed that M/s. Soumya Business had disclosed the sale of Rs. 9,04,354/- only for the relevant quarter ended December 2012 and corresponding invoices were numbered from 287 to 336 which were not matching with the bills raised by the said party on the assessee. The said bill numbers however were not matching with the two bills raised by the said party on the assessee bearing no 169 dated 02.12.2012 and 186 dated 05.12.2012 and the remaining bill nos. for Rs. 6,06,000/- were found to be not reflected in the VAT return of M/s. Soumya Business. As regards the claim of the assessee of having distributed 246 silver coins amongst his clients, the A.O. asked him to furnish the list of such clients. The assessee however could give a list of only 90 clients and when summons were issued by the A.O. to 10 of such clients, two summons were returned back by the postal authority with the remark “non known”. The A.O. also found certain other infirmities in the claim of the assessee of having distributed silver coins amongst his clients. He further noted that as per the IRDS Rules, it was not permissible for any LIC agent to give any gift to the person who has taken a policy through that agent. Accordingly the expenditure claimed to the incurred by the assessee on business promotion expenses to the extent of Rs. 15,10,354/- was disallowed by the A.O. in the assessment completed u/s 143(3) vide an order dated 16.03.2016.
- Against the order passed by the A.O. u/s 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) restricted the disallowance of Rs. 15,10,354/- out of sales promotion expenses to Rs. 6,06,000/- for the following reasons given in his impugned order:
“4.4 I have gone through the assessment order, the submissions made by the appellant and the material on record. There are some important facts that need to be brought into perspective. The appellant has submitted certain documents during the appellate proceedings, amongst which a letter 15/01/16 written by the Deputy Commissioner of Sales Tax to the Asstt. Commissioner of Income Tax, Cir- 37, Kolkata i.e. the A.O. in this case. In the said letter the Dy. Commissioner of Sales Tax has made a mention of certain facts which are, among others, as under:
2a. From the return uploaded by the dealer Sl. No. 47 – Information on issue and receipt of tax invoices, the dealer has declared that in the tax period 201209. Tax invoices issued from serial no. 143 to serial no. 199 (photo copy enclosed). However, in Annexure-B – Part II and Annexure -B- Part III for the period no sale is declared to Binod Kumar Kheria. (Photo copies of the said Annexure-B Part II and Part-III are enclosed).
- From the return uploaded by the dealer Sl. No. No. 47 – Information on issue and receipt of tax invoices, the dealer has declared that in the tax period 2012-10, Tax invoices issued from serial no.200 to serial no. 230, in the tax period 2012-10, Tax invoices issued from serial no. 231 to serial no. 286 and in the tax period 2012-12, tax invoices issued from serial no. 287 to serial no. 336 (Photo copy enclosed).
- Audit proceedings for 4QE 31.3.2013 were completed ex-parte. The assessed dues have been transferred to the T’RO, 24 Parganas for recovery.
- Proceedings for cancellation of the VAT registration u/s 291(i)(c) of WBVAT Act 2003 is being processed. The dealer has issue fake bills to dealers of various charges and their respective charges are taking necessary action at their end.
- The dealer has paid Rs. 11800 as VAT during the 4Q.E. 31.3.2013.
4.4b. The copies of bills for purchase (Tax Invoice) issued by Soumya Business and submitted by the appellant have the following details:
|Tax Invoice No.||Date of issue||Description||Quantity||Rate||Rupees|
|SB/169/2012-13||02.11.2012||Silver coins 100 gms each||100 pieces||6010/pc||6,07,010|
|SB/174/2012-13||20.11.2012||Silver coins 100 gms each||50 pieces||6000/pc||3,03,000|
|SB/186/2012-13||05.12.2012||Silver coins 100 gms each||46 pieces||6400 pc||2,97,344|
|SB/191/2012-13||02.01.2013||Silver coins 100 gms each||50 pieces||6000/pc||3,03,000|
4.4c. lf the details provided by the Dy. Commissioner of Sales Tax is compared with the details provided by the appellant, certain issues are noted. These are:
- The serial numbers of tax invoices by Soumya Business in its VAT Return are different from those mentioned on the Tax Invoices presented by the appellant. AS can be observed, as per the Tax Invoice submitted by the appellant, the invoice numbers are169 and 174 for the month of November 2012, 186 in the month of December 2012 and 191t in the month of January 2013. However, as per the information received from the Dy. Commissioner of Sales Tax, the Tax Invoice numbers issued and reported by Soumya Business are:
231 to 286 in November 2012 and 287 to 336 in the month of December 2012.
- The prices of one gram of silver were different November 2012 and in January 2013. This has been checked with certain websites. Thus, on 02.11.2012 the price of one gram of silver remained around Rs. 53.47, on 20.11.2012, it was around 58.72 and at 54.15 on 02.01.2013(Source:https://www.bullion-ates.com/silver/INR/2012-11-history.htm). Thus, under no circumstance could the price of silver have remained the same as on 20.11.2012 and on 02.01.2013 as has been claimed by the appellant.
iii. From the copy of Annexure B- Part-III of the VAT return for the time period 01.10.2012 to 31.12.2012 filed by Soumya Business and produced by the appellant during the appellate proceedings, it is observed that Soumya Business has declared “Jewelry” under ‘Major group of commodity’ worth Rs. 9,04,354 as sold to Shri Binod Kurnar Kheria. If this piece of evidence is anything to rely upon, it is clear that the VAT Return of Soumya Business does not voucher for the entire sale of silver coins made to the appellant.
- This becomes important because the appellant has relied heavily on the VAT Return filed by Soumya Business.
- Further, during the assessment proceedings, despite several efforts, the proprietor of Soumya Business could not be located. In fact, the Sales Tax Department has also stated that he is not traceable.
(vi) The most important input that the above quoted letter from the Dy. Commissioner of Sales Tax contains is that Soumya Business had been issuing fake bills to various persons and that the Sales Tax Department has initiated action against him. Perhaps, fearing some adverse consequence, the proprietor of Soumya Business is absconding.
4.4d. Looked at in this backdrop, the decisions relied upon by the appellant do not come to his rescue. In the cases referred above, the vendors were untraceable or were unresponsive as a result of which the AO(s) had disallowed the claims of the assessee. It is on this account that the Tribunals held that once the assessee had furnished the basic details related to the transaction and the existence of the vendors, their claims deserve to be allowed. However, in this case, though the vendor is absconding and is untraceable, there are other evidences on record which show that the quantum of transaction claimed by the appellant are not correct. The preponderance of probabilities weigh heavily against the appellant’s claim on the following accounts:
- The invoice numbers produced by the appellant are different from those that Soumya Business has stated in its VAT Return. In other words, these are not the invoices which have been mentioned by Soumya Business in VAT return, One may assume, these tax invoices produced by the appellant are not genuine.
- The rates of silver is stated to be the same on 20thNovember 2012 and on 2ndJanuary 2013. This however, is far from being true.
- The proprietor of Soumya Business has been found by the Sales Tax Department to be indulging in issuing fake bills and that the Sales Tax Department has initiated against him.
- The proprietor of Soumya Business is absconding.
4.4e. In view, the A.O. has been reasonable enough to allow the appellant an amount of 9,04,354/- which was mentioned in the VAT Return filed by Soumya Business even though the Tax Invoice numbers did not match. Therefore, the action of the A.O. in disallowing an amount of Rs. 6,06,000/- is upheld. This ground of appeal is, consequently dismissed.
Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.
- The learned counsel for the assessee submitted that the assessee is having substantial business as an LIC agent and during the year under consideration, 300 new policies were issued by him and the total commission of more than Rs. 1 crore was earned by him. He submitted that 246 silver coins were distributed by the assessee amongst the policy holders as part of business promotion and the claim of the assessee for purchase of the said coins was duly supported by the four bills raised by the concerned supplier. He submitted that the enquiry made by the A.O. to verify this claim of the assessee with the concerned VAT authority also revealed that the two bills raised by the concerned party on the assessee amounting to Rs. 9,04,354/- were duly declared in the VAT returns. He contended that the Assessing Officer however still disallowed the entire claim of the assessee based on four bills and it was only the CIT(A) who restricted the said disallowance only to the extent of two bills amounting to Rs. 6,06,000/-. He contended that the disallowance to that extent was sustained by the Ld. CIT(A) as the relevant bills were found to be not declared by the concerned supplier, M/s. Soumya Business for VAT purposes. He contended that if the said supplier had invaded VAT, the assessee’s claim could not be doubted especially when the same was duly supported by the bills issued by the said party and payment against the same was made by cross-cheque. He contended that the onus to support and substantiate his claim for the business promotion expenses was duly discharged by the assessee and the Ld. CIT(A) was not justified in sustaining the disallowance made by the A.O. on this issue to the extent of Rs. 6,06,000/-.
- The learned DR, on the other hand, submitted that the genuineness of the relevant two bills produced by the assessee in support of his claim for the business promotion expenses has been found to be doubtful by the authorities below on the basis of specific adverse findings and observations. In this regard, he invited my attention to the relevant portion of the assessment order to point out the enquiry conducted by the A.O. for verifying the claim of the assessee and the specific adverse findings resulted from such enquiry. He pointed out that even the invoice nos. and the rate charged for the silver coins in the relevant bills were found to be not matching. He submitted that the rate charged for the silver coins sold during different periods was same which is not possible. He contended that M/s. Soumya Business was reported by the concerned VAT authority as found to be indulging in issuing bogus bills and despite this adverse report as well as other adverse findings recorded by the A.O., the Ld. CIT(A) allowed the claim of the assessee to the extent of Rs. 9,04,354/- under a wrong impression that the A.O. himself had allowed the same. He contended that the assessee has already got more than reasonable relief from the Ld. CIT(A) on this issue and he does not deserve any further relief.
- I have considered the rival submissions and also perused the relevant material available on record. As rightly contended by the learned DR, specific adverse findings and observations were recorded by the A.O. on the basis of enquiry conducted by him while verifying the claim of the assessee of having distributed 246 silver coins amongst the policy holders. As revealed from the enquiry made by the A.O. from the concerned VAT authority, the supplier of the said coins, M/s. Soumya Business was indulging in issuing fake bills. Moreover, out of the four bills claimed to be raised by the said supplier on the assessee, only the sale to the extent of two bills was disclosed by it in the relevant VAT return. Even the bill nos. declared in the said VAT return were not matching with the bill nos. raised on the assessee. The assessee also could not furnish the list of all 246 policy holders to whom the silver coins were claimed to be given as part of business promotion. The assessee could submit a list of only 90 of such persons and the A.O. found certain anomalies and infirmities even in the said list. In spite of all these adverse findings, the Ld. CIT(A) allowed the claim of the assessee to the extent of Rs. 9,04,354/- and as rightly pointed out by the learned DR from the relevant potion of the impugned order, the said relief was also given by him under the wrong impression that the A.O. himself had allowed relief to the assessee to that extent. Keeping in view all these facts and circumstances of the case, I am of the view that the assessee has already got reasonable relief from the Ld. CIT(A) on this issue and there is no case for allowing any further relief to the assessee. I accordingly uphold the impugned order of the Ld. CIT(A) on this issue and dismiss this appeal filed by the assessee.
- In the result, the appeal of the assessee is dismissed.
Order Pronounced in the Open Court on 5th September, 2018.
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